PETRONAS Dagangan Berhad (KLSE:PETDAG) Is Increasing Its Dividend To MYR0.11

The board of PETRONAS Dagangan Berhad (KLSE:PETDAG) has announced that it will be paying its dividend of MYR0.11 on the 22nd of September, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

View our latest analysis for PETRONAS Dagangan Berhad

PETRONAS Dagangan Berhad's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the dividend made up 101% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 30.1%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 76% which is a bit high but can definitely be sustainable.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from MYR0.90 total annually to MYR0.70. Doing the maths, this is a decline of about 2.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that PETRONAS Dagangan Berhad's earnings per share has fallen at approximately 8.8% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

PETRONAS Dagangan Berhad's Dividend Doesn't Look Great

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for PETRONAS Dagangan Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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